Just Fix It Wisconsin

The transportation debate: Critics say Scott Walker’s record on road funding will be an issue this fall 4/4/2018

The orange construction barrels are a summertime nightmare for Tom Diehl.

Every year they line highway routes to Diehl’s business, the Tommy Bartlett Show attraction in Wisconsin Dells, warning customers from Minnesota and Chicago that more time in the car is ahead.

Despite determining that the Interstate 39/90 corridor would face congestion from escalating traffic, the state halted an effort a year ago to expand the interstate from Madison to Wisconsin Dells, opting to fund other projects.

That decision has come with congestion and means tourists spend less time and money in the Dells, one of Wisconsin’s top-grossing vacation spots. It is becoming a barrier to getting them to come at all, said Diehl, who has worked on tourism and economic development initiatives under Republican administrations for more than 30 years and served as chair of the Governor’s Council on Tourism from 1986 to 1999.

“I can’t tell you the amount of negative comments we are getting from people: ‘We are sick of the orange barrels. We are sick of waiting,’” Diehl said.

Diehl’s frustration is one shared by business owners around the state, Democrats and a contingent of Republican leaders who point to a growing fiscal and infrastructure problem: Wisconsin’s roads continue to get worse as the state spends more of its money on debt interest with no revenue growth in sight.

The issue has fractured Republicans in the Legislature. During budget negotiations, Gov. Scott Walker straddled that divide, setting himself up to campaign on a narrative that runs counter to reports from nonpartisan analysts.

Republicans fundamentally disagree about whether a road problem exists. Some say the state needs more money for roads because they are in disrepair and getting worse, while others, including Walker, say the state has enough money, but needs to allocate it better.

Democrats say the disconnect arms them with campaign ammunition and that Patty Schachtner’s victory in the 10th Senate District earlier this year shows transportation will be a key election issue this fall.

How bad are the roads, really?

The condition of the state’s roads and highways are the subject of a complicated argument between lawmakers and the Walker administration, which makes it challenging to determine how much money is actually needed to fix them or where to get it.

In February, U.S. News and World Report ranked Wisconsin 44th in the country for its road conditions, a slight improvement from its ranking of 49th last year. The report, which is based on data from 2016 and 2017, noted that 31 percent of the state’s roads are in poor condition compared to Minnesota’s 10 percent.

While the ranking is alarming to some who say it indicates more money is needed to fix and rebuild roads in the state, others, including Walker and Americans for Prosperity, point to other statistics that show the state’s roads to be in fine shape.

They say rural roads and highways can be maintained if the state does a better job of cutting unnecessary costs and stewarding existing money more efficiently.

“Wisconsin’s backbone roads are 98.1% fair or above. These roads carry half of the state’s traffic and over 85% of the freight,” said Walker spokesoman Amy Hasenberg, citing the state Department of Transportation.

But advocates of more transportation revenue say that backbone routes, which are interstates and multi-lane divided highways, do not encompass most roads in the state, which are smaller, local roads still in need of repair.

In a Legislative Audit of DOT last year, analysts cited figures from a 2014 report from the state to the Federal Highway Administration showing that 32.2 percent of the state’s roads were “good,” 58.7 percent were “acceptable” and 9.1 percent were “not acceptable.”

“The proportion of state highways in good condition in Wisconsin was considerably lower than in six other midwestern states and the entire nation,” according to the audit.

Paying off debt

Borrowing has been the primary way Walker and his predecessor, Gov. Jim Doyle, have funded transportation projects in the state. The state borrows against two pots of its own money: the transportation fund, comprised of money from gas taxes; and the general fund, made up of taxpayer dollars.

This kind of borrowing, where governments issue debt at fixed rates to buyers, is called bonding. Both political parties endorse bonding and other states do it, too. Because a newly built road can last at least 20 years, taking on long-term debt can make sense.

But as Wisconsin continues to borrow, some say a troubling trend has emerged: the amount of interest the state is paying on its debt is increasing faster than money the state is collecting.

In 2009-10, 11 percent of the state’s transportation revenue went to interest on its debt. Now it’s 20 percent and is projected to climb by about 1 percent each year if the state continues to borrow as it has, according to the nonpartisan Legislative Fiscal Bureau.

The total amount of transportation-related debt the state owes has nearly doubled over the last decade, from $2.6 billion in 2007 to $4.4 billion in 2017, according to the LFB. Transportation projects now make up 45 percent of total state borrowing, up 10 percentage points from a decade ago.

Those who agree that the state’s transportation debt is troubling, including people working in the road building industry, say the state needs to generate more revenue to pay for transportation. They have said that all options should be on the table, including tolling and a gas tax.

DOT studied the feasibility of tolling in 2016 and found that while it could raise billions, it would require an arduous federal approval process and significant upfront investment. Senate Majority Leader Scott Fitzgerald said it is the only revenue generator that could bring in enough money to fill the state’s funding gap.

The same 2016 study found that without increases in taxes or fees, Wisconsin roads would get much worse over the next 10 years.

Walker has said he is open to a gas tax only if a tax cut is made elsewhere to offset it. His administration has managed debt responsibly, said Eric Bott, president of Americans for Prosperity in Wisconsin.

“We’re reaching a peak at overall indebtedness in the transportation program. Within a couple of years that debt is going to start deeply declining,” Bott said. “Our debt outlook is more promising than gas tax proponents would like to let on.”

But that analysis depends on the spending decisions the state makes in the next budget, said analysts at the Legislative Fiscal Bureau.

Walker disputes the argument that the state’s borrowing trend is problematic and says his administration has made historic investments in local and highway road infrastructure.

“Transportation bond revenue is revenue and real investment. These are dollars used for roads just as gas tax or registration fee revenue is. Use of bond revenue to borrow funds is appropriate especially for major and mega transportation projects such as the Zoo Interchange, I-39/90, and state highway 10/441 with life spans of 30 plus years,” Hasenberg wrote in an email.

A key difference between money that comes to the state through bonds and revenue raised from taxes or fees is that bond money is borrowed. It costs taxpayers to borrow because the government has to pay interest on it.

Due to stagnant revenue, borrowing for past projects costs the state a higher percentage of its revenue stream, according to LFB.

But Hasenberg said the state is paying off debt faster than it is authorizing new debt. She points to findings from the 2013 Transportation Finance and Policy Commission, a nonpartisan group convened to study the long-term funding of Wisconsin transportation.

The commission set a goal to have the state’s interest payments on debt to be less than 25 percent of its transportation revenue.

“We are well below this mark,” Hasenberg said.

While technically true, Walker’s rhetoric doesn’t tell the whole story on debt, said Craig Thompson, executive director of the Transportation Development Association and one of 10 members on the Transportation Finance and Policy Commission.

“There are statements throughout the report that expresses our extreme concern with the trajectory of the debt. We set a hard cap of 25 percent that should never be exceeded and we were fearful on the current trajectory that could happen in less than a decade,” Thompson said.

“There were many other recommendations of that same commission on the investment levels necessary to maintain current (road) conditions which were disregarded,” he said.

In its final report, the commission said, “Commissioners are concerned these payments are becoming a significant, ongoing expenditure in the transportation program because bond repayment of principal and interest is generally a 20-year commitment.”

Do we have a revenue problem or a spending problem?

Under Walker, the state Department of Transportation has shifted its position on whether the state’s problem is with revenue or spending when it comes to road maintenance and repair. Secretary David Ross says the amount of revenue coming in is adequate, signalling that the department is shifting what projects it prioritizes.

“DOT continues to pursue its goal of having the highest quality transportation system possible. To achieve this goal, the department is committed to the pursuit of efficiency and to the use of asset management principles,” said DOT spokeswoman Rebecca Kikkert. The agency will continue to reevaluate how it develops and prioritizes its programs, she said.

Former DOT Secretary Mark Gottlieb, who was appointed by Walker in 2011, resigned in 2016 after saying road conditions would worsen under Walker’s funding plan and advocated for more transportation revenue.

The LFB analysis supports Gottlieb’s concern. It has been raising flags in its reports about the state’s transportation borrowing trajectory for years.

“The repayment of debt is beginning to cannibalize revenue in the transportation fund, which makes it harder to fund highway programming at the level necessary,” said Al Runde, an LFB analyst who has been studying transportation spending for more than a decade. “We’ve also seen that at the current levels of funding, the Department of Transportation has indicated road conditions will worsen.”

The root of the problem, LFB analysts say, is lack of growth in the state’s transportation fund, the key source of revenue for road projects.

The fund’s compound growth rate from 2006-07 through 2018-19 was 1.4 percent, roughly half of what it was the preceding seven years, according to the LFB, which has warned lawmakers about the trend in several budget papers.

If the state was a private sector business, it would be “in big trouble” when combined with that level of interest payments, said Tommy Bartlett’s Diehl.

“It’s smoke and mirrors, basically that’s what it is,” he said. “You push the can down the road because it’s not in your current budget but the next budget.

“If you keep doing that you’re fiscally irresponsible.”

John Gard, who led the state Assembly in 2005 to end automatic increases to the state’s gas tax, agrees.

“Skyrocketing debt is not a conservative principle,” said Gard, who now works as a lobbyist based in Green Bay. “At some point the borrowing has to stop.”

Gard said he faced political pressure to cut the tax at a time when gas prices were high.

He has been an ally to the road building industry and said the plan from his fellow Republicans was always to reinstate a gas tax that had to be approved each year or find additional long-term revenue streams to fund roads. Instead, it became politicized, he said, with Republicans wanting to say they cut taxes, even when the long-term outlook for transportation funding was precarious.

“It’s basically what many people have criticized the federal government for: driving us into paralyzing debt. And the same thing is occurring here in transportation,” he said. “I go back to, it’s one of the only things the government is fully responsible for and this is not easy. None of the answers are good.”

Gard sits on the side of a Republican rift that includes current Assembly Speaker Robin Vos, Senate Majority Leader Scott Fitzgerald, and several business associations and local government groups including the League of Municipalities and the Wisconsin Counties Association. This GOP camp believes the state has a road and a transportation debt problem that needs a revenue-producing solution.

A campaign issue

Democrats say they plan to leverage and highlight those disparate transportation narratives against Republicans in the 2018 campaign. Democrats agree there is a problem and say Republicans have shown they can’t get on the same page to solve it.

Patty Schachtner’s January victory in the Republican-leaning 10th Senate District, which Walker proclaimed a “wakeup call” for the GOP, shows that voters care about local issues including roads, said Melanie Conklin, spokeswoman for the state Democratic Party.

“The 10th Senate District in part is indicative because there are a lot of people struggling to get by. Spending hundreds of dollars on a car repair and car wear-and-tear when they have to ride on roads to get from place to place, that is a huge cost and a huge burden on families who are struggling,” said Conklin. “It’s an economic issue and it’s a fairness issue.”

“Republicans have total control of state government and they can’t get anything done. We’re seeing a lot of divisiveness … they’re not even able to work with themselves, much less reach across the aisle and reach some solutions,” said Melissa Baldauff, a Democratic strategist who previously worked for Milwaukee County Executive Chris Abele and the Democratic Party of Wisconsin.

Walker’s administration is quick to point out Gov. Jim Doyle’s record on borrowing and transfers out of the transportation fund. Doyle transferred $1.4 billion out over four budget years, according to the LFB.

Doyle said he had to make the transfers to ensure schools were fully funded.

“They repeatedly sent me budgets that cut education by 100’s of millions of dollars. I was able to restore that funding, giving school modest 3 percent increases while roads were still getting significantly higher percentage increases. You can balance schools and roads,” he said.

When Walker took office, he advocated for a constitutional amendment to prevent future transfers, requiring money generated from transportation to stay in the fund.

Local projects stalled

As DOT looks to reexamine its funding priorities for transportation projects throughout the state, local projects are being cut, even if state and/or local government already spent money on them.

In Wisconsin Rapids, the state began a road project on the city’s busy 2nd Avenue intersection that connects to a state-owned highway notorious for traffic accidents. The state asked the city to pay $100,000 to acquire driveway access so DOT could begin the project, but later dropped it citing lack of state funds, said Mayor Zach Vruwink.

“My concern is, how long is that list? If we’re one community across the state that had a project pulled, there is obviously a lot more out there,” he said.

The city pushed back after the DOT cut the project knowing that its share of the costs will likely increase. The state agreed to cap the local cost share, but the state’s transportation funding situation is concerning, Vruwink said.

“The reality is it’s going to cost somebody more. It’s going to cost us more so taxpayers will be paying more,” he said.

That struggle illustrates the cost of decisions made by lawmakers and Walker to prioritize Foxconn infrastructure ahead of other projects, Vruwink said. The state is directing between $70 million and $90 million away from other state highway projects to build roads for the Foxconn Technologies plant in Racine County, according to an LFB memo.

“In this light there has been a lot of rhetoric around Foxconn, but it goes to show what the tradeoffs are that other parts of the state are making to support a project that is happening in another part of the state,” Vruwink said.

Counties and municipalities statewide have implemented vehicle registration fees called “wheel taxes,” in addition to the state’s registration fee, to shore up more road revenue. Six counties and 19 municipalities in the state have the fees, according to the DOT.

But Wisconsin Rapids’ aging population and stagnant tax base limits its ability to raise revenue through a tax, Vruwink said.

“We’re capped with how much revenue we can raise,” he said. “It’s based as a growth factor which hasn’t seen a lot of growth. We’ve been really challenged to make decisions around whether to do certain infrastructure projects or quality of life projects.”

‘They can go somewhere else’

Despite Walker’s assurances, large business associations say road conditions are declining and acknowledge that more money, not borrowed through bonding, is needed.

“I think people are realizing the system we have is not sustainable long term. We have to go to something technologically relevant and more sustainable in the long-term,” said Steve Baas, vice president of government affairs for the Metropolitan Milwaukee Association of Commerce. “There’s no doubt that debt service reduces the power of the fund overall and in the end you have to buy down if you want the fund to run efficiently.”

Many of MMAC’s 1,800 members are concerned about how the state is addressing an aging transportation system, a problem that Walker inherited.

“I think it’s a concern going forward and what it will do to constrain their ability to grow if we don’t take care of our infrastructure,” Baas said. “(The) big picture our members get is there is a structural problem with the way we fund roads and that a lot of that isn’t just because of the debt service going up but the traditional sources of revenues are slowly becoming obsolete.”

If road issues don’t stand alone as campaign issues, voters should recognize the issue is inextricably related to all the issues that are at the fore, including, jobs, health care and the overall state economy, said Gard.

“If you want to remain competitive in the marketplace and you know if you’re a manufacturer not owned by people in Wisconsin, there is not as much loyalty if it becomes cost prohibitive to move those goods. Time is money, long-term,” Gard said, who lobbies on behalf of Wisconsin Independent Businesses Inc and an infrastructure investment advocacy group. “If you ignore the reality of your infrastructure, you are putting yourself at a disadvantage long-term.”

Ultimately, reliable and uncongested roads is about business and jobs. Tourism is a fragile industry, said Diehl.

“People have choices. They don’t have to go to Wisconsin if the road situation interferes. With their time sitting in traffic, they’ll go somewhere else,” he said. “It’s a critical component of the tourism industry. It’s no different than manufacturing or Foxconn.”

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More and more we all realize that transportation, in all its different modes, is at the foundation of strong community and economic development. TDA exists to bring diverse transportation interests together so that decisions are made to help Wisconsin continue to be the most attractive state in the nation in which to live and work.